SARS lodged a complaint with the National Prosecuting Authority in February 2003 in respect of Income Tax transgressions by a company called Intertek Testing Services (Pty) Ltd ("Intertek") and both KPMG and two of its associates.
On Tuesday, 4 May 2004, Intertek pleaded guilty to five counts of contravening section 75 of the Income Tax Act, 1962, by negligently failing to disclose to SARS material information relating to its international transactions. These transactions were subject to the transfer pricing provisions of section 31 of the Income Tax Act. Intertek acknowledged its negligence resulted in an understatement of its gross income for the period under investigation.
The following statement was lodged by Intertek with the Court today in mitigation of sentence (quoted in full below):
The income tax returns for the years 1997, 1998, 1999 and 2000 were signed by Lionel Lee the then Financial Director of Intertek Testing Services (Pty) Ltd ('Intertek') the accused and the 2001 income tax return was signed by Stephen Alan Kersney, who by 1st July 2002 had become the Financial Manager of Intertek.
In each of the income tax returns in paragraph 10.30(a) of Part 10 the questions reads as follows:
'Did the company enter into any international agreement with a connected person in respect of goods and/or services as contemplated in Section 31(1)?'
and the column marked 'NO' has been ticked off. In actual fact the column marked 'YES' should have been ticked off as Intertek had an agreement with its Holding Company in the United Kingdom in terms whereof an agreed fee was payable by the Holding Company to Intertek for services rendered by Intertek in South Africa on behalf of the Holding Company.
In respect of the periods, 1997, 1998, 1999 and 2000 KPMG prepared the tax returns incorporating the incorrect information as aforestated in conjunction with Lionel Lionel Lee.
In respect of the tax return of 2001 Stephen Alan Kersney relied on the expertise of KPMG and expected that the information contained and as captured by KPMG in the tax return concerned was correct.
The Accused accepts that it was negligent but states in mitigation it relied on Lionel Lee and KPMG in completing an accurate and factually correct return.
The Accused undertakes that in conjunction with SARS it will embark upon a process aimed at bringing its tax affairs into order, in particular having regard to transactions falling within the ambit of section 31(1) of income tax act (sic)."
In addition to the above, Intertek paid SARS R4 million in full and final settlement of the tax debt arising from the non-disclosure of material information in relation to its international transactions.
The above submissions to Court in Durban clearly vindicate SARS' position in this matter. The admissions and the payment of R4 million by Intertek refute any allegation that SARS had no case to pursue or that SARS had acted in an inappropriate manner.
SARS reaffirms its commitment to appropriately, and within the scope of the law, pursue any non-compliance with the tax laws of the county.
ISSUED BY THE COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE